Fraudulent Concealment

Attorney Aiding and Abetting and Assignment of Malpractice Claims

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Rabbi Stanley Kroll (“Kroll”) had a thirty-year employment contract with his Synagogue. The contract included a deferred compensation plan (the “Plan”) to fund Kroll’s retirement.  The Synagogue was allowed to amend the Plan unilaterally, but not in any way that divested credits to the account or rights to which Kroll would be entitled if the Plan were terminated before an amendment took effect.  Id. at 1.  The Synagogue asked Kroll to retire six years early. Kroll agreed, but on his last day, a Synagogue officer told him that a tax issue had arisen, promising it would be resolved.  Kroll found out later that the issue had not been resolved, thereby subjecting his deferred compensation to heavy taxes and penalties.  Moreover, the Synagogue did not have sufficient funds to pay Kroll, and had amended the Plan to eliminate benefits to which Kroll would otherwise be entitled. Kroll sued the Synagogue, which settled and assigned to him all causes of action related to the Plan that it might have against the law firm it used to amend it: Cozen O’Connor (“Cozen”). Kroll then sued Cozen on multiple counts, but Cozen moved to dismiss. The motion was granted in part and denied in part.

To begin, the Court noted that legal malpractice claims may not be assigned in Illinois except under three exceptions.  However, none of these exceptions applied. It explained that “Kroll is a stranger to [the Synagogue] and Cozen’s attorney-client relationship and was owed no duty by Cozen.”  Id. at 4.  The Court also granted dismissal of Kroll’s aiding and abetting breach of fiduciary duty claim.  It said that no fiduciary duty existed between Kroll and the Synagogue, so Cozen could not have aided a breach of that duty. Id. at 7.  The Court dismissed Kroll’s fraudulent concealment claim as well, since Kroll did not allege facts sufficient to explain how a Cozen attorney used his position of superiority and legal knowledge to take advantage of Kroll’s trust and confidence in him, “especially given that [the attorney] represented the opposing party.”  Id. at 8, emphasis in original.

Conversely, the Court rejected Cozen’s argument that Kroll’s claims were barred by Illinois’ two-year statute of limitations for claims arising out of an attorney’s performance of professional services.  Here, it held that Kroll had demonstrated possible equitable tolling or estoppel when he asserted that a Synagogue officer misled him about resolving the tax issue and that a Cozen attorney misrepresented the enforceability of the Plan’s amendment.  Id. at 5.  Kroll’s claim that Cozen aided and abetted the Synagogue’s fraud was allowed to stand as well.  The Court, quoting an Illinois case, saw “no reason to impose a per se bar that prevents imposing liability upon attorneys who knowingly and substantially assist their clients in causing another party’s injury.”  Id. at 6. Here, the Court agreed that Kroll had pleaded facts sufficient to assert the Synagogue’s fraud and Cozen’s assistance therein.

Rabbi Stanley Kroll, Plaintiff, v. Cozen O’Connor, 2020 WL 919005

(This is for informational purposes and is not legal advice.)

Consulting Another Attorney Starts the Clock

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Anne Anderson (“Anderson”) sued attorney Denise Kuzniewski (“Kuzniewski”) for legal malpractice during the dissolution of Anderson’s marriage.   Kuzniewski moved for summary judgment, arguing among other things that Anderson’s action was time-barred.  The motion was granted, and the Appellate Court of Illinois, Second District, affirmed on that basis.  It explained that, “the statute of limitations for attorney malpractice incorporates the discovery rule: an action must be filed within two years of when the plaintiff ‘knew or reasonably should have known of the injury for which damages are sought.’”  Id. at ¶ 28; 735 ILCS 5/13-214.3(b).  Here, Anderson filed her complaint on December 21, 2016.  However, she had expressed dissatisfaction with the dissolution of marriage judgment as early as March, 2011, and had consulted with another attorney about the judgment in October, 2011 because she “knew [the settlement] was not right.”  Id. at ¶ 12.  The Appellate Court explained that, “not only did this consultation start the limitations period (had it not started earlier), it ended any fraudulent concealment by defendant.”  Id. at ¶ 39.Anne Anderson (“Anderson”) sued attorney Denise Kuzniewski (“Kuzniewski”) for legal malpractice during the dissolution of Anderson’s marriage.   Kuzniewski moved for summary judgment, arguing among other things that Anderson’s action was time-barred.  The motion was granted, and the Appellate Court of Illinois, Second District, affirmed on that basis.  It explained that, “the statute of limitations for attorney malpractice incorporates the discovery rule: an action must be filed within two years of when the plaintiff ‘knew or reasonably should have known of the injury for which damages are sought.’”  Id. at ¶ 28; 735 ILCS 5/13-214.3(b).  Here, Anderson filed her complaint on December 21, 2016.  However, she had expressed dissatisfaction with the dissolution of marriage judgment as early as March, 2011, and had consulted with another attorney about the judgment in October, 2011 because she “knew [the settlement] was not right.”  Id. at ¶ 12.  The Appellate Court explained that, “not only did this consultation start the limitations period (had it not started earlier), it ended any fraudulent concealment by defendant.”  Id. at ¶ 39.

Anderson v. Kuzniewski, 2019 IL App (2d) 190020-U

(This is for informational purposes and is not legal advice.)

Attorney’s Omissions or Inaction May Constitute Fraudulent Concealment

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Robert Brandolino (“Brandolino”) retained Douglas Schlak (“Schlak”) to assist him in a real estate sale.  Brandolino held a life estate in the property to be sold, while his three sons (the “Plaintiffs”) held remainder interests.  The Plaintiffs granted Schlak power of attorney so that he could represent them and their father in the transaction .  When the sale was concluded, Brandolino gave each son $100,000, which they believed was a gift for their help in facilitating the sale.  Thirteen years later, however, the Plaintiffs discovered previously unknown papers in Brandolino’s home explaining their true interest in the property.  These included several documents signed by Schlak on the Plaintiffs’ behalf without their knowledge or consent, tax and closing forms, and papers explaining that Brandolino’s supposed gift to the Plaintiffs was actually payment for their interest in the property.

The Plaintiffs sued Schlak for legal malpractice.  They alleged that Schlak never explained their interests to them or advised them to seek separate counsel given the possible conflict with Brandolino’s interests.  Rather Schlak purportedly induced them not to attend the closing, signed documents on their behalf without permission, failed to deliver various documents to them after the sale, and otherwise intentionally withheld material information.  Had they been properly counseled, the Plaintiffs insisted they would have demanded more money for their remainder interests.

Schlak moved to dismiss the Plaintiffs’ complaint as untimely, since it had been filed more than thirteen years after his alleged malpractice.  At hearing, the Court explained that “in Illinois, a statute of repose provides that legal malpractice claims ‘may not be commenced in any event more than 6 years after the date on which the act or omission occurred.’” Id. at 2, 735 ILCS 5/13-214.3(c).  However, the Court noted that fraudulent concealment tolls the statute of repose “until the plaintiff has had a reasonable opportunity to discover the malpractice.”  Id. at 3, 735 ILCS 5/13-215.  Here, the Plaintiffs argued that Schlak’s deliberate failure to provide them with material information relating to the property sale constituted fraudulent concealment, which tolled the statute of repose until they uncovered the fraud many years later.  Schlak countered that fraudulent concealment requires “affirmative actions, as opposed to mere silence.”  Id.  The Court conceded that Schlak’s position is generally correct, except where two parties maintain a special relationship like that of an attorney and client.  In this case, the Court held that discovery could reveal Schlak’s actions or lack thereof amounted to fraudulent concealment that prevented the Plaintiffs from discovering their claim.  Schlak’s motion to dismiss was therefore denied.

Brandolino v. Schlak, No. 19-CV-00102, 2019 WL 3287891 (N.D. Ill. July 22, 2019)

(This is for informational purposes and is not legal advice.)

Knowledge of Injury Governs a Statute of Limitations, not Knowledge of a Claim

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Jeffrey Mandalis (“Mandalis”) sued his former attorneys, David Wentzel and Scott Blake (the “Defendants”), claiming they negligently and fraudulently misrepresented the terms of a settlement agreement in a dispute between several members of Mandalis’ family concerning ownership of certain assets.  He also alleged that the Defendants failed to disclose their potentially conflicting representation of his aunt in the same matter, and that they did not inform him when they mediated the family dispute.  Further, allegedly without Mandalis’ knowledge, Blake initialed a settlement term sheet that included all of Mandalis’ rights and claims.  When Mandalis confronted the Defendants, they supposedly misrepresented the nature of the settlement, saying some of his relatives had agreed to settle only as to their interests, and that he would receive his share of the assets later.

Subsequent mediations were inconclusive, so the Defendants asked Mandalis to agree to a binding mediation- arbitration on October 13, 2013.  On October 24, 2013, the Defendants finally informed Mandalis that he should seek separate counsel.  Mandalis did so within three days, but alleged that the Defendants continued to mislead him as to his interest in the family assets until eight days before the November 27, 2013 closing date.  Despite all, Mandalis attended the closing and signed the closing documents for fear that that further dispute would diminish his share of the assets.  He filed his initial complaint in December 2015.  The Defendants moved to dismiss his suit as untimely per the two-year statute of limitations and for failure to allege sufficient facts to support his causes of action.  The trial court granted the motion.  Mandalis moved to reconsider, and appealed when his motion was denied.

The First District affirmed, stating that statutes of limitations do “not require that the injured party have actual knowledge of the alleged malpractice.”  Id. at ¶ 43.  Rather, “knowledge that an injury has been wrongfully caused does not mean knowledge of a specific defendant’s negligent conduct or knowledge of the existence of a cause of action.”  Id.  The First District highlighted that “there can be no doubt that the plaintiff actually knew of his injury in March 2013, such that the filing of his complaint against the defendants in December 2015, was barred by the two-year statute of limitations.”  Id. at ¶ 47.  It clarified that Mandalis “was not only in possession of sufficient information about his injury to be placed on inquiry to determine whether actionable conduct was involved, but in fact had actual knowledge of both the injury and the cause of that injury in March 2013.”  Id.   Nevertheless, it went on, “[i]f the plaintiff did not actually know of his injury after the March mediation settlement, in the very least, he certainly should have known of it after the entry of the October 13, 2013, binding arbitration award enforcing that settlement.”  Id. at ¶ 48.  Mandalis countered that, even if he was injured in October 2013, the Defendants tolled the statute of limitations by fraudulently concealing their misconduct.  In particular, he claimed the Defendants reassured him that his stated goals remained viable.  The First District rejected this argument too.  “Contrary to the plaintiff’s position,” it explained, “he nowhere alleged that the defendants failed to disclose any material facts to him.”  Id. at ¶ 56.  It also pointed out that “the plaintiff admitted that he subsequently participated in the binding arbitration knowing full well that the arbitration award would enforce the terms of that term sheet.”  Id.

Mandalis v. Wentzel, 2019 IL App (1st) 180455-U, opinion corrected and superseded, 2019 IL App (1st) 18-0455-U

(This is for informational purposes and is not legal advice.)

 

Neuman v. Gaffney, 2018 IL App (2d) 180184-U

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In September 1997, a Federal District Court ruled partially in favor of a class of plaintiffs against the State of Illinois for hiring discrimination, although the ruling did not address back pay or other pay relief.  In April 1999, attorney John Gaffney (“Gaffney”) filed a putative class action against the State of Illinois for back pay on behalf of John Mittvick (“Mittvick”) and Edward Urban as plaintiffs and class representatives.  The State moved to dismiss without prejudice, asserting the plaintiffs had failed to timely file charges of discrimination with the Equal Employment Opportunity Commission.  Before that motion could be granted, Gaffney filed his own motion to dismiss without prejudice, which was granted.  Gaffney notified his clients of this by letter, telling them he could no longer represent them and that they should join another class action on this matter already in progress.

Nearly sixteen years later, Robert Neuman (“Neuman”) filed a petition to intervene in the 1999 case, having supposedly just learned of it.  He claimed that he was an absent class member in the 1997 and 1999 cases, and that the 1999 case had not been validly dismissed.  The District Court dismissed Neuman’s petition, holding that dismissal of the 1999 case was valid.  Neuman appealed, but lost when the Seventh Circuit held that he “was already aware of a possible case in 2001 and that a diligent person would have investigated.”  Id. at ¶9.  Neuman then sued Gaffney for legal malpractice, alleging Gaffney had breached his fiduciary duty to notify unknown and unnamed absent class members prior to dismissal of the 1999 suit.  Gaffney successfully moved to dismiss because the six-year statute of repose for legal malpractice claims in Illinois had already lapsed.

On appeal, Neuman argued that the statute of repose should not have been applied because Gaffney had fraudulently concealed important information like the fact that the 1999 case had been voluntarily dismissed, which caused Mittvick not to pursue it further. This alleged concealment, he argued, would toll the statute of repose.  However, the appellate court held that whether or not Gaffney specified to Mittvick that his case had been dismissed voluntarily made no difference.  After reviewing Gaffney’s letter to Mittvick, the Court declared, “there is no indication that he attempted to conceal anything relevant from Mittvick.  He told Mittvick that the complaint had been dismissed and that Mittvick would have to seek a new attorney going forward.”  Id. at ¶22.  Despite Neuman’s insistence that Gaffney’s letter contained misrepresentations, the Court held that “such misrepresentations, even fraudulent ones, are not equivalent to acts of fraudulent concealment.”  Id.

Neuman v. Gaffney, 2018 IL App (2d) 180184-U

(This is for informational purposes and is not legal advice.)

Barefoot Architect , Inc. v. Sabo & Zahn, 2017 IL App (1st) 162616-U

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In this unpublished opinion, the First District affirmed the dismissal of a legal malpractice claim on statute of limitations grounds and a breach of fiduciary duty claim resulting from a bankruptcy case where the plaintiff had hired attorneys other than the defendants to represent in those proceedings. The court held that, ordinarily, a cause of action for malpractice accrues when a court enters an adverse judgment against a malpractice plaintiff. Here, the statute of limitations had run even using the date the appellate court entered an adverse judgment against the plaintiff. The court held that the lawyers’ statements that the court had erred did not establish were insufficient to preclude application of the statute of limitations under theories of fraudulent concealment or equitable estoppel.

Barefoot Architect , Inc. v. Sabo & Zahn, 2017 IL App (1st) 162616-U

(This is for informational purposes and is not legal advice.)

Abrahamson v. Greenberg Traurig, LLP, 2017 Il App (1st) 162226-U

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In this unpublished opinion, the First District affirmed the dismissal of a legal malpractice claim on statute of limitations and statute of repose grounds.  It rejected the plaintiff’s argument that equitable estoppel and fraudulent concealment tolled the statutes.

Abrahamson v. Greenberg Traurig, LLP, 2017 Il App (1st) 162226-U

(This is for informational purposes and is not legal advice.)

Recent Illinois Case: Dobbins v. Zager

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In this unpublished order, the First District affirmed the dismissal of a legal malpractice claim on statute of repose grounds.   The court held that neither equitable estoppel nor fraudulent concealment saved the claim.  The court emphasized that misrepresentations that toll the statute of repose must be different from the representations that constitute the alleged malpractice.

Dobbins v. Zager, 2016 IL App (1st) 151175-U

(This is for informational purposes and is not legal advice.)

Recent Illinois Case: Pierce v. Vojta

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In this unpublished opinion, the First District affirmed the dismissal of a legal malpractice complaint on statute of limitations grounds.   The court also rejected plaintiff’s argument that her lawyers’ failure to inform her of her malpractice claim against them constituted fraudulent concealment.

Pierce v. Vojta, 2015 IL App (1st) 142510-U

(This is for informational purposes and is not legal advice.)

 

Recent Illinois Case: Beshkov v. Katten Muchin Rosenman LLP

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Legal malpractice claim was barred under the statute of limitations and the statute of repose.   The court held that, assuming that the defendant fraudulently concealed the claim, plaintiff’s claim was still barred because she had a reasonable amount of time (9 months) within which to file her action after she discovered it.   The court rejected arguments that the “reasonable time” exception to the fraudulent concealment statute had been rejected by the supreme court; that the court could not decide plaintiff’s discovery date as a matter of law; and that the court could not decide what was a reasonable time to file as a matter of law.

Beshkov v. Katten Muchin Rosenman LLP, 2015 IL App (1st) 142455-U

(This is for informational purposes and is not legal advice.)